Can the FCC Handle Phone Service over the Internet?

[Commentary] Slowly and carefully, the Federal Communications Commission is circling around a problem that may be its hardest ever. The digital TV transition? Piece of cake. First-on-the-planet incentive auctions? No sweat. But this one is tough: nothing less than a remake of the US telephone system, all 120 million phones and 1.5 billion miles of wire.

The engineers and entrepreneurs have gotten out ahead of the FCC lawyers. Now the lawyers are scrambling to catch up. Voice over Internet Protocol (VoIP) presents the FCC with a doctrinal conflict. On the one hand, VoIP is an Internet application, and the FCC has long forborne from regulating Internet applications. This principle says: leave VoIP alone. On the other hand, the FCC tries to be technology-neutral -- that is, to regulate similar services similarly, regardless of how they are delivered. The economics dictate that more and more telephone users and functions will migrate to the Internet. Some public interest advocates view this trend with alarm. In particular, they fear losing hard-won consumer protections that benefit PSTN users. VoIP providers are likely to argue, as the broadband providers did, that traditional telephone-line protections are infeasible or unneeded in an Internet age. The question is, to provide expensive, hard-to-reach rural areas equal access to coverage, will the FCC regulate the coverage of IP telephony like wireline phones or like mobile phones -- or possibly some other way? The answer may be a fund that all providers, whether wireline or VoIP, would pay into, and that would subsidize rural and reservation service -- somewhat like the present high-cost component of the universal service fund, but with much of the revenue coming from outside the conventional telephone industry. Multiply this issue by every other facet of telephone regulation. The overall task will be something like updating the rules of the road from horse-and-carriage traffic to modern automobiles.

[Dec 22]